Sensex jumps to 19-month high on Goldman upgrade

US investment bank Goldman Sachs on Thursday gave Indian bourses a shot in the arm by upgrading its rating for the nation’s stocks to overweight. Also, the government agreed to a discussion in Parliament on foreign direct investment (FDI) in multi-brand retail under the voting rule, sparking hopes that it would now step on the gas to push through economic reforms. These, besides comments from the US authorities that they were trying to avoid the looming fiscal cliff, boosted investor sentiment, driving the Bombay Stock Exchange (BSE) benchmark Sensex beyond the 19,000 mark to a 19-month high of 19,170.

The Sensex rose 328 points, or 1.75 per cent, over its previous close. The broader S&P CNX Nifty of the National Stock Exchange (NSE) rose 97 points, or 1.7 per cent, to 5,825.

In a report released on Thursday, Goldman predicted the Nifty might rise 14 per cent to 6,600 by the end of 2013.

“Reforms and changes in government leadership this fall have created optimism among domestic investors for the first time in over a year. The risk of policy mis-steps in 2013 has been lowered,” said the report.

It added the valuation of MSCI India (a composite index most foreign institutions track) was well below the five-year average of 14.9 times. This offered and an attractive entry point into the country’s markets, it said.

A sharp rise in interest-rate-sensitive stocks of the real estate, automobile and banking sectors helped benchmark indices gain momentum. Bajaj Auto was the day’s top gainer, rising five per cent. Among others, ICICI Bank climbed 4.59 per cent, while Cipla surged 3.59 per cent.

The market breadth was positive, with 54.86 per cent (1,681) BSE stocks rising, against 41.25 per cent (1,264) that fell. Provisional figures showed, foreign institutional investors (FIIs) were net buyers of equities to the tune of Rs 1,579 crore. Domestic institutional investors were net sellers of Rs 896 crore. FIIs have invested $1.2 billion in local stocks so far this month.

Dipen Shah, head of PCG research, Kotak Securities, said, with the deadlock on retail FDI broken and discussion likely to happen next week, markets were factoring in some further announcements on fiscal reforms.

However, some in the market say the ongoing rally may not be sustainable. “Institutional players are still sceptical of the recent rise in share prices,” said Elara Capital Managing Director Hirendra Kumar.

Destimoney Securities MD & CEO Sudip Bandyopadhyay said the concerns might soon re-emerge on both domestic and global fronts. “The share price rise is not sustainable and profit booking may come as early as next week. There is anticipation some key Bills would be passed in Parliament, but it looks challenging,” he said.